Exhibit 10.7


 


SUBORDINATED PROMISSORY
NOTE


 


	
  $2,000,000.00

  	
   

  	
  DECEMBER
  18, 2009

  



 


FOR VALUE
RECEIVED, CUBIC ENERGY, INC., a Texas corporation (“Debtor”), unconditionally promises
to pay to the order of CALVIN A. WALLEN, III
(together with his successors and assigns, “Lender”),
without setoff, at Lender’s offices at 9870 Plano Road, Dallas, Dallas County,
Texas  75238, or at such other place as
may be designated by Lender, the principal amount of TWO MILLION
AND NO/100 DOLLARS ($2,000,000.00), or so much thereof as may be
advanced from time to time in immediately available funds, together with
interest computed daily on the outstanding principal balance hereunder, at an
annual interest rate (the “Rate”), and
in accordance with the payment schedule, indicated below.


 


1.             Rate.  The
Rate shall be the lesser of (a) the MAXIMUM
RATE, or (b) the PRIME RATE
plus  ONE PERCENT (1.00%) per
annum.  The term “Prime
Rate” means a variable rate of interest per annum equal to the
prime rate as published from time to time in the “Bonds, Rates &
Yields” table of The Wall Street Journal.  If the prime rate is no longer published in
the “Bonds, Rates & Yields” table of The Wall
Street Journal, then Lender will choose and notify Debtor of a
substitute index that is based upon comparable information.  Notwithstanding any provision of this Note or
any other agreement or commitment between Debtor and Lender, whether written or
oral, express or implied, Lender shall never be entitled to charge, receive, or
collect, nor shall amounts received hereunder be credited so that Lender shall
be paid, as interest a sum greater than interest at the Maximum Rate. It is the
intention of the parties that this Note, and all instruments securing the
payment of this Note or executed or delivered in connection therewith, shall
comply with applicable law.  If Lender
ever contracts for, charges, receives or collects anything of value which is
deemed to be interest under applicable law, and if the occurrence of any circumstance
or contingency, whether acceleration of maturity of this Note, prepayment of
this Note, delay in advancing proceeds of this Note, or any other event, should
cause such interest to exceed the maximum lawful amount, any amount which
exceeds interest at the Maximum Rate shall be applied to the reduction of the
unpaid principal balance of this Note or any other indebtedness owed to Lender
by Debtor, and if this Note and such other indebtedness are paid in full, any
remaining excess shall be paid to Debtor. 
In determining whether the interest exceeds interest at the Maximum
Rate, the total amount of interest shall be spread, prorated and amortized
throughout the entire term of this Note until its payment in full. The term “Maximum Rate” as used in this Note
means the maximum nonusurious rate of interest per annum permitted by whichever
of applicable United States federal law or Texas law permits the higher
interest rate, including to the extent permitted by applicable law, any
amendments thereof hereafter or any new law hereafter coming into effect to the
extent a higher Maximum Rate is permitted thereby.  If at any time the Rate shall exceed the
Maximum Rate, the Rate shall be automatically limited to the Maximum Rate until
the total amount of interest accrued hereunder equals the amount of interest
which would have accrued if there had been no limitation to the Maximum
Rate.  To the extent, if any, that
Chapter 303 of the Texas Finance Code, as amended, (the “Act”)
is relevant to Lender for purposes of determining the Maximum Rate, the parties
elect to determine the Maximum Rate under the Act pursuant to the “weekly
ceiling” from time to time in effect, as referred to and defined in
§303.001-303.016 of the Act; subject, however, to any right Lender subsequently
may have under applicable law to change the method of determining the Maximum
Rate.


 


2.             Accrual
Method.   Interest on the indebtedness evidenced by this
Note shall be computed on the basis of a THREE
HUNDRED SIXTY (360) day year and shall accrue on the actual number
of days elapsed for any whole or partial month in which interest is being
calculated.  In computing the number of
days during which interest accrues, the day on which funds are initially
advanced shall be included regardless of the time of day such advance is made,
and the day on which funds are repaid shall be included unless repayment is
credited prior to the close of business on the business day received as
provided herein.


 


3.             Rate
Change Date.  The Rate will change each time and
as of the date that the Prime Rate changes.


 


4.             Payment
Schedule. 
The outstanding principal balance of this Note, plus accrued and
unpaid interest thereon shall be due and payable on the earlier of (i) the
acceleration of the indebtedness hereunder; (ii) SEPTEMBER 30, 2012, or (iii) such
other date as may be established by a written instrument between Debtor and
Lender, from time to time (the “Maturity Date”).  Accrued and unpaid interest on the
outstanding principal balance 


 

















 


of this Note shall be due and payable monthly commencing on JANUARY 31, 2010 and continuing on the SAME day of each calendar month thereafter
(or if no such corresponding date, on the LAST
date of such calendar month).


 


5.             Prepayments.  Prepayments may be made in whole or in part
at any time in whole or in part without premium or penalty.


 


6.             Event
of Default.  Upon
the commencement of any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar
proceeding of any jurisdiction relating to Debtor, the unpaid principal amount
hereof shall become immediately due and payable without presentment, demand,
protest or notice of any kind in connection with this Note.


 


7.             Waiver.  The failure at any time of Lender to exercise
any of its options or any other rights hereunder shall not constitute a waiver
thereof, nor shall it be a bar to the exercise of any of its options or rights
at a later date.  All rights and remedies
of Lender shall be cumulative and may be pursued singly, successively or
together, at the option of Lender.  The
acceptance by Lender of any partial payment shall not constitute a waiver of
any default or of any of Lender’s rights under this Note.  No waiver of any of its rights hereunder, and
no modification or amendment of this Note, shall be deemed to be made by Lender
unless the same shall be in writing, duly signed on behalf of Lender; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Lender or the obligations of Debtor to Lender
in any other respect at any other time.


 


8.             Applicable
Law, Venue and Jurisdiction.  Debtor agrees that this Note shall be deemed
to have been made in the State of Texas at Lender’s address indicated at the
beginning of this Note and shall be governed by, and construed in accordance
with, the laws of the State of Texas and is performable in the City and County
of Texas indicated at the beginning of this Note.  In any litigation in connection with or to
enforce this Note or any indorsement or guaranty of this Note, Debtor
irrevocably consents to and confers personal jurisdiction on the courts of the
State of Texas or the United States courts located within the State of
Texas.  Nothing contained herein shall,
however, prevent Lender from bringing any action or exercising any rights
within any other state or jurisdiction or from obtaining personal jurisdiction
by any other means available under applicable law.


 


9.             Partial
Invalidity. 
The unenforceability or invalidity of any provision of this Note shall
not affect the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of this Note to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.


 


10.          Binding
Effect. 
This Note shall be binding upon and inure to the benefit of Debtor and
Lender and their respective successors, assigns, heirs and personal
representatives, provided, however, that no obligations of Debtor hereunder can
be assigned without prior written consent of Lender.


 


11.          Controlling
Document. 
To the extent that this Note conflicts with or is in any way
incompatible with any other document related specifically to the loan evidenced
by this Note, this Note shall control over any other such document, and if this
Note does not address an issue, then each other such document shall control to
the extent that it deals most specifically with an issue.


 


12.          COMMERCIAL
PURPOSE.  DEBTOR REPRESENTS TO LENDER THAT THE PROCEEDS OF THIS
LOAN ARE TO BE USED PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL
PURPOSES.  DEBTOR ACKNOWLEDGES HAVING
READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS AND CONDITIONS OF
THIS NOTE.


 


13.          Collection.  If this Note is placed in the hands of an
attorney for collection, or if it is collected through any legal proceeding at
law or in equity or in bankruptcy, receivership or other court proceedings,
Debtor agrees to pay all costs of collection, including, but not limited to,
court costs and reasonable attorneys’ fees.


 


14.          Notice
of Balloon Payment.  At maturity (whether by acceleration or
otherwise), Debtor must repay the entire principal balance of this Note and
unpaid interest then due.


 


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15.          WAIVER
OF JURY TRIAL. 
DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR
COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THIS NOTE OR THE ACTS OR FAILURE
TO ACT OF OR BY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF
THIS NOTE OR THE OTHER LOAN DOCUMENTS.


 


16.          Subordination.


 


This Note shall, to the extent and in the manner
provided herein, be subordinated and junior in right of payment to the prior
payment in full of all Senior Indebtedness, as hereinafter defined.  Senior Indebtedness of any type or from any
lender shall not be deemed to have been paid in full until the termination of
all commitments or other obligations for such Senior Indebtedness, including under
hedge agreements, and the payment in full in cash thereof (and for all purposes
hereof the term “paid in full” or any variation thereof with respect to Senior
Indebtedness shall mean that payment in full has been made in cash and that all
commitments of the holders of the Senior Indebtedness shall have been
terminated).


 


By accepting this Note, Lender hereof covenants and
agrees that this Note shall be subject to the provisions of this Section 16;
and each person holding this Note, whether upon original issue or upon transfer
or assignment hereof, accepts and agrees to be bound by such provisions.  This Note may not be transferred or assigned
unless the transferee or assignee has acknowledged in a writing its acceptance
of the provisions set forth in this Section 16.  The provisions of this Section 16 shall
constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness,
and such holders are hereby made obligees under such provisions and the same as
if their names were written herein as such, and they and/or each of them may
proceed to enforce such provisions.


 


The term “Senior Indebtedness”
shall mean (a) the principal of, the premium, if any, and interest
(including, without limitation, interest that accrues after the filing of a
petition initiating any action or proceeding under the U.S. Bankruptcy Code or
any other bankruptcy, insolvency or similar law or statute protecting creditors
in effect in any jurisdiction, whether or not such interest accrues after the
filing of such petition for purposes of the U.S. Bankruptcy Code or such other
law or statute or is an allowed claim in any such action or proceeding (“Post-Petition
Interest”)) on, and all other
obligations, liabilities, fees, premiums, indemnifications, costs, expenses
(whether for enforcement, protection of collateral or otherwise) or otherwise,
whether secured or unsecured, in whole or in part, and whether outstanding on
the date of this Note or hereafter created, incurred or assumed, with respect
to, or created, governed or evidenced by the Credit Agreement dated as of MARCH 5, 2007, by and among Wells Fargo Energy Capital, Inc.
(the “Senior Lender”) and Debtor (the “Senior Credit Agreement”) or any
other related documents or any prior, concurrent, or subsequent notes,
instruments or agreements or indebtedness, liability or obligations of any type
or form whatsoever relating thereto, and (b) all deferrals, renewals,
extensions, refinancings and refundings of any such indebtedness or any
amendments, restatements, supplements or other modifications thereof.  Debtor and the holders of the Senior
Indebtedness may amend or modify the Senior Credit Agreement or any related
documents without the consent of Lender without impairing or releasing the
subordination of the debt evidenced by this Note to the repayment of the Senior
Indebtedness as set forth herein.


 


Until the prior payment in full of the Senior
Indebtedness, Lender shall not receive or accept any payment from Debtor
including, without limitation, payment of principal, interest, default interest
or other fees or expenses; provided, however, so long as no Event of Default or
Unmatured Event of Default (as such terms are defined in the Senior Credit
Agreement) exists at the time of making such payment or immediately after
giving effect Debtor can make regularly scheduled payments of interest to
Lender.


 


Until the Senior Indebtedness has finally been paid in
full, the holder of this Note will not take or omit to take any action or
assert any claim with respect to the indebtedness evidenced by this Note or
otherwise which is inconsistent with the provisions of Section 16.  Until the Senior Indebtedness has been
finally paid in full, the holder of this Note will not assert, collect or
enforce the indebtedness evidenced by this Note or any part thereof or take any



 


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action to foreclose or
realize upon such indebtedness or any part thereof.  Until the Senior Indebtedness has been
finally paid in full in, the holder of this Note shall not have any right of
subrogation, reimbursement, restitution, contribution or indemnity whatsoever
from any assets of Debtor or any guarantor of or provider of collateral
security for the Senior Indebtedness.  In
no event shall this Note be accelerated while there is outstanding Senior
Indebtedness.  Any payment collected or
received by the holder of this Note in violation of this Section 16 shall
be held in trust for the benefit of, and shall be paid over or delivered to,
the holders of Senior Indebtedness.


 


Interest shall continue to accrue on the principal
balance of this Note at any time during which there exists an Event of Default
or Unmatured Event of Default (as such terms are defined in the Senior Credit
Agreement).


 


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INTENTIONALLY BLANK


 


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EXECUTED as of the date first written above.


 


	
  DEBTOR:

  	
  ADDRESS:

  
	
   

  	
   

  
	
  CUBIC
  ENERGY, INC.

  	
  9870 Plano Road

  
	
   

  	
  Dallas, Texas
  75238

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  



 


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